Preview

The major media debate about the $1.9 trillion American Rescue Plan involves the overall size of the package, driven largely by Larry Summers’ anger over getting blackballed from the Biden campaign last summer. That’s not actually much of a debate, because the decision-makes are all aligned. It’s very likely that the U.S. will pass an additional $1.9 trillion or so of pandemic relief, mostly focused on helping low- and middle-income people survive the pandemic and getting everyone vaccinated as quickly as possible. And they’re going to do it in the next month or so.

Summers has had no impact on this, and that’s as it should be. Financial markets and Federal Reserve officials don’t see much risk from inflation, and Summers’ fear of an overheating economy is based on bad math and a seeming desire to keep a large section of the population in financial pain. That this is being rejected should be celebrated. It’s not 2009 anymore.

That said, there is a debate happening inside Congress, over the fate of one key component of the bill and the structure of another. About 90 percent of the bill is going to get through relatively unscathed, in the form Joe Biden presented before his inauguration. The remaining 10 percent really matters so we’re focused on it. And yesterday the House made key decisions on both pieces.

Yesterday we discussed the debate over what level to phase out the direct payments. I explained how a different economist, Raj Chetty, triggered this debate by airdropping a two-page research paper based on imprecise, outdated ZIP code-level data to “prove” that nobody above $78,000 spent stimulus money. (Nobody above $78,000 got a full stimulus check, but somehow that never gets said.) Economist Claudia Sahm, who I quoted extensively in my piece, wrote an even more thorough takedown of the Chetty paper.

But Claudia and I didn’t end up on the op-ed page of the New York Times, as Chetty and his fellow researchers did yesterday, given the space to present the research again and pre-emptively rebut critics. That they felt the need to do this shows that a real debate is forming. But the role of elite media is pushing through Chetty’s narrative is notable. The research first gained attention in a Washington Post spread on January 26, with the very explicit headline “Cutting off stimulus checks to Americans earning over $75,000 could be wise, new data suggests.” Nowhere in that story does it mention using ZIP code-level rather than household-level data; in fact the technical appendix explaining the data source isn’t linked in the paper until a week later. When the paper finally starts to get some criticism, NYT gives it an unmediated op-ed. The only disclosure of the ZIP code-level data is in a caption to a chart. Did I mention that influential NYT op-ed columnist David Leonhardt sits on the advisory board for Opportunity Insights, Chetty’s umbrella group that produced this analysis?

The second major variable in the bill is whether the increase in the minimum wage to $15 an hour will be added. This is mostly a function of whether the Senate parliamentarian allows it in the budget reconciliation process, agreeing that it has a significant budgetary impact. That was likely to hinge on a Congressional Budget Office analysis of the legislation, and whether they took the budget implications into account.

That CBO report dropped yesterday, and there’s good news and bad news. The bad news is it’s just a terrible report. It assumes that, while 27 million people would get a raise, there would be 1.4 million jobs lost (over 10 years, so that sounds a lot bigger than it is). That plays havoc with all the budgetary implications. There are higher unemployment insurance costs, higher interest on the national debt, and higher prices for goods and services baked in. Basically CBO tried to model the entire economy and national expenditures based on this one change.

It also based that model on arbitrarily choosing seven research studies about minimum wage increases and then over-emphasizing the negative ones, as Arin Dube explains. If CBO used the methodology it used in 2019 to look at a previous minimum wage bill, it would have shown a 1.1 million job loss. Instead it showed 1.4 million, and that drift is completely at odds with the latest research. A fiery call from the Economic Policy Institute yesterday savaged the CBO score. “Normally we don’t like to yell at the referees,” said AFL-CIO economist Bill Spriggs. “But in this regard, the CBO has stepped outside its bounds and is not speaking truth to power, but is giving information that is misleading.”

I wrote two years ago that the CBO was going to be a problem, though you get no points for being first, or right. But that leads us to the good news. Ultimately, CBO shows that the wage hike would cost the government $54 billion in the 10-year window, when contemporaneous analyses showed budget savings of close to $500 billion. Many progressive economists disagree with that analysis. Nevertheless, a budget impact is a budget impact, and the Senate parliamentarian will have to disallow something more than twice the size of closing the carried interest loophole, for example, if they choose to nullify the minimum wage hike from reconciliation.

All this is preamble to what the House did yesterday afternoon. The Ways and Means and Education and Labor committees released their preliminary text of the reconciliation bill, which will be marked up this week. Education and Labor kept the minimum wage hike, and Ways and Means kept the phase-outs for direct payments starting at $75,000 a year for individuals and $150,000 for couples. (Some are trying to make hay about a “faster phase-out” but it’s really not much faster. The previous checks reduced the value by $5 for every $100 over the threshold. This phase-out would reduce value by… $5.60 for every $100. It’s not really a difference, made just to get a round number cutoff at $100,000/$200,000.)

House leadership, in other words, ignored the cries to tighten the means test, recognized the anger middle-class voters would have if they qualified for two previous checks and not this one, and just kept the structure in place. The structure is still flawed—either 2019 or 2020 earnings data can be used for the checks, depending on when it passes and when individuals file taxes, so there’s still a burden on individuals to manage the system to maximize payout. The means test based on outdated income data makes no sense (it’s a major problem in this new version of the Child Tax Credit too.) But it’s not needlessly restrictive.

The Senate can still, and probably will still, put their mark on this. But the House set an early baseline, and we’ll see if that passes through the markups. I know the Progressive Caucus organized to include both of these pieces. The leadership could have punted right away on both these questions and they didn’t. Since checks and the minimum wage are super-popular, it gives progressives more time to build support and rebut contrasting arguments. It allows these important elements, both policy-wise and politically, to have a fighting chance.

I was on Bad Faith podcast with Briahna Gray Joy and Virgil Texas. Here’s a preview. (Apple podcasts)
A non-binding vote over undocumented immigrants and pandemic relief funds is causing internal Democratic strife. (Politico)
Pfizer now assures that they can cut vaccine production time in half. (USA Today)
Biden asking Trump’s U.S. Attorneys to resign. Good work. (CNN)
The historical echoes of Biden’s Civilian Climate Corps. (Grist)
Yuck, Cass Sunstein got a job in the Department of Homeland Security. (Bloomberg)
Meanwhile, the decision on who should run the Office of the Comptroller of the Currency lingers. (Wall Street Journal)
Good report making the case for forgiving taxes on unemployment insurance in 2020. (The Century Foundation)